The%20Basics%20of%20the%20Accounting%20System%20Jan%2013%202010

The%20Basics%20of%20the%20Accounting%20System%20Jan%2013%202010

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The Basics of the Accounting System
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Dr. Mimi Alciatore 2 The Balance Sheet A Snapshot in Time The Fundamental Accounting Equation: Assets = Liabilities + Equity
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Dr. Mimi Alciatore 3 The Balance Sheet Assets = Liabilities + Equity Assets ( Resources ) will always Equal the Sources of those assets. That is, Assets belong to Either the Creditors or the Owners
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Dr. Mimi Alciatore 4 The Balance Sheet Simple Inc. was started on January 15th. Its founders invested $100,000 cash into the firm in exchange for 10,000 shares of stock . Assets $100 = Liabilities $0 + Equity $100 (It Balances)
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Dr. Mimi Alciatore 5 The next day, Simple obtained $20,000 cash from a bank in exchange for a note Assets $120 = Liabilities $20 + Equity $100 Cash Loan Owners’ Original Invested Capital (It Balances) If dissolved the firm at this point, $20,000 would go to the bank (ignore interest) and the remaining $100,000 would go to the owners (shareholders).
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Dr. Mimi Alciatore 6 Simple bought inventory of $30,000 and paid cash for it Assets $120 = Liab $20 + Equity $100 $90 Cash Loan Original + 30 Inventory Invested Capital Double Entry Accounting System: Assets ( Resources ) Will Always Equal the Sources of those Assets.
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Dr. Mimi Alciatore 7 It paid its employees $10,000 in cash for salaries Assets $110 = Liab $20 + Equity $90 $80 Cash Loan Original + 30 Inventory 100 Capital -10 Expense
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Dr. Mimi Alciatore 8 Simple sold the inventory on credit for $50,000 Assets $130 = Liab $20 + Equity $110 $80 Cash Loan Original Capital 100 $50 Accounts Receivable Income = $10 + 50 Revenue Retained Earnings = $10 - 10 Expense (Salaries) - 30 Expense (Cost of Goods Sold)
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Dr. Mimi Alciatore 9 Simple paid $5,000 of cash dividends Assets $125 = Liab. $20 + Equity
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The%20Basics%20of%20the%20Accounting%20System%20Jan%2013%202010

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